Welcome to Retirement Unpacked with Al Smith, owner of Goldn Eagle Financial. You want a retirement plan that alleviates your fears about the future, so you know your money will last. As a chartered financial consultant, Al Smith will help you find a balance between the risk and reward of the market and the safety of your retirement income. And now, here’s your host, Al Smith. Welcome to another program of Retirement Unpacked. I want to thank you for tuning in. I have some good information, some diverse information for you this afternoon. And before I dive into that, I want to encourage any of you that are sort of thinking, “Gee, am I on track for retirement?” Or, “Are my assets positioned in the right place to last, even if I live a long time in retirement?” Or, “If I should have to move to assisted living, do I have enough money for that?” If you have any of these questions on your mind, give my office a call, 303-744-1128. And if you call when I’m there, I’ll answer the phone myself. We can schedule a long conversation on the phone or an opportunity for you to come into the office. We can meet and learn how I might be of help. The first topic this afternoon I will be talking about is tax-free income. Income and retirement is obviously an important part of the planning process, and sometimes some of that income can be tax-free. Now one of the big advantages of having tax-free income when you do the computation, when you file your taxes each year, there’s a form that I fill out, but no tax preparer or CPA does, it’s called the form 915. And what that form does, it determines how much of your social security is going to be included with the rest of your income and taxed. The reason CPAs and tax preparers don’t fill out this form is because they all use software. And the guts of this computation is embedded in the software. But I do it by hand, not because I’m old school, but because it reveals how much income you can have in addition to your social security with very little of that social security being taxed. So we’re going to talk about a few forms of tax-free income. The first is you may not know about this one, you can rent your own home up to 14 days per year and not have to pay tax on the rent that you receive. And if you have a nice home in a nice area, you may be able to get two or three hundred dollars per day for that, especially if there is some big event going on. If there’s a big concert at Red Rocks or something like that. So $200 a day times 14 days if my math is right, that’s about, let’s see, $2,800. That would probably pay for homeowners insurance or maybe part of the property insurance, party of real estate taxes and so forth. The other thing, the next thing rather is if you sell your home. If you have lived in that home and you are a couple, you and your spouse, the sale of your home would be subject to capital gains except for the first $500,000 because that’s a personal couple’s exemption. If you own your home and you’re an individual, the first $250,000 of capital gains is not subject capital gains tax when you sell your own home. So that is one source of income that may not be taxed or if it is taxed only a much smaller part of it. Municipal bonds. Now we’ve all seen advertisements from municipal bonds that is where the state or a municipality or some tax-receiving entity, some governmental entity borrowers money. They may be building, maybe for building roads or bridges or a new rec center or something of this nature and these municipalities sell bonds and they can be tax-free federal or they’re nearly always tax-free federal but sometimes they are also tax-free in the state. So that’s one form of tax-free income. Now there is a caveat to that. When you use that form, that form 915 which no one uses except me, one of the things that they bring back into the formula is municipal bond income. So in other words, if someone is determining how much of their social security is taxed and they’re with their tax prepared or even though your municipal bond income you don’t have to pay federal tax for that, it is included when they determine how much of your social security will be taxed. If you have a reverse mortgage, the income that you receive from a reverse mortgage is tax-free because you are tapping into your equity so to speak. Social security benefits and they are not necessarily tax-free. It’s sort of a sliding scale. And as I mentioned, that form 915 will help determine how much of your social security will be included with the rest of your income and taxed. So generally speaking, there’s a couple of different brackets if someone’s income is quite low. Zero of their social security will be taxed. If their income shall we say medium income, then about half of their social security will be included with the rest of their income and taxed. And if a couple or individual has pretty substantial income by that over 40 or $50,000 of just a gross income, then 85% of their social security will be included with their income to determine how much of it will be taxed. HSAs, you have heard of these, of course, health savings accounts, withdrawals from HSAs if they are used to pay for medical expenses, those are tax-free. So that is a source of tax-free income. Now if you withdraw from an HSA and you don’t spend it on medical care, there is a 20% penalty. But HSAs, if they’re used the way they were designed to be used, are very attractive because the contributions into health savings accounts are tax deductible. And the distributions, the money you take out, is tax-free if it’s used for healthcare. And sometimes that can be used to pay premiums on long-term care insurance. And that is not a clear cut. There are certain limitations to that. So if you’re thinking about that, I would consult either your tax-prepar or your CPA to make certain if deductions rather distributions from your HSA can be used to pay long-term care insurance. And inheritance, if your inheritance is well below the threshold for inheritance taxes, and that’s over $10 million. So about 99.5% of inheritances are tax-free because they don’t exceed that amount. So that is one source of tax-free income if someone passes on and you are an heir, that money that you receive is tax-free. And there’s one other interesting thing to note. Certain assets such as real estate and stock, when someone dies and they leave that stock or that home to a son or a daughter or a spouse and that son or daughter sells that property. Even though the parent may have lived in it for 20 years, maybe paid $200,000 for it and now it’s worth a million, the person who inherits it, or she will get what’s called a step-up in basis, which means there will be no capital gains for the person who inherited the property when he or she sells it. Their only capital gain would be how much it appreciates after the date of the person who passed on and left. And that’s true both for stock as well as for real estate. Life insurance proceeds are also tax-free. And in addition to that, if someone purchased life insurance at a younger age and it built up considerable amount of cash value, there can be loans against that life insurance, which are also tax-free. And in most cases, those loans don’t have to be paid back. It just have to be very careful to make certain that there’s enough money remaining in the policy to keep it going. Because if someone strips so much money out of a life insurance policy that it is no longer sustainable, then those loans become distributions. And if the distributions exceed the amount of premium that’s been paid in, then loans or distributions from life insurance could be taxable. But that’s something, if you ever have a question about that, that’s something I can help with at my office. But death proceeds are 99% of the time tax-free and loans and distributions from the cash value are tax-free. But one must be careful that you don’t strip so much money out of a policy that the policy will not support itself. Veterans benefits are also tax-free. That’s very important because those people who have served, some of them have suffered pretty serious health problems as a result of their service. Agent Orange benefits, for example, for Vietnam veterans who were exposed to that. And Iraq veterans who were exposed to some of those, I forgot what they’re called, but those fires and burns that included toxic chemicals and things like that. So veterans benefits are tax-free. And if you think you have some eligibility for that, I would highly encourage you to go to the VA and learn about that because a lot of veterans are eligible for benefits and some may not even be aware of that. Many benefits are generally tax-free, not always, but they usually are. And public assistance, if someone is receiving some sort of Medicaid or welfare benefits or something like that, generally speaking, those kinds of benefits are also tax-free. And the last category or topic I will talk about before I dive into gifts are income from a Roth IRA. Roth IRAs are IRAs where the money that’s put into those that contributions are after tax. And so that money accumulates tax-free and then the distributions that occur at a later date, those are tax-free also. And one of the conversations I often have with people who come into my office is is it time to consider converting part of your traditional IRA to Roth. Now if you do that and take money out before five years, then the income or the growth of that could be taxable. And I’ll talk a little bit more about that after the break before I dive into our second topic. Al Smith of Golden Eagle Financial as a Fiduciary will act in your best interest. Many people misunderstand that it is critically important for your financial advisor to be a Fiduciary. Like Al Smith, with retirement planning, you won’t know you have problems until it’s too late. That’s why you need Al’s extensive knowledge and years of experience to strategize with you, taking into consideration your individual circumstances. And you’ll have Al’s cell phone number. If you have a concern or question, no need to press one for English. Just call him personally. If you need to make a change or have a question about something, you can reach him directly. Most importantly, financial advisors are typically fee-based. Al doesn’t charge anything upfront. Rather, an industry standard rate based on your portfolio’s performance. So there’s no upfront cost. Find out more with a free consultation. You can reach out by clicking on Golden Eagle on the klsiradio.com Advertisers page. Investment advisory services offered through bookstone capital management LLC, a registered investment advisor. BCM and Golden Eagle Financial Limited are independent of each other. Insurance products and services are not offered through BCM, but are offered in Seoul through individually licensed and appointed agents. Welcome back to Retirement Unpacked. We were talking about various streams of income that are tax-free. And the last one I was talking about is Roth IRA income. And essentially, Roth IRAs are money that’s put in that you’ve already paid tax on. And the contribution level maximums are about 7,000 a year, unless you’re over 50, then it’s 1,000 a year. And the money you take out is tax-free with the one exception. If you convert a traditional IRA to Roth, the first five years, the growth of that account, or the interest, if you take that out during the first five years after converting into Roth, that would be taxable. And it creates a little bit of an accounting hurdle, so to speak, because if people convert incrementally traditional IRA to Roth over time, they end up having multiple accounts, each account being based on the date of the conversion. But going forward, then, obviously, if someone at age 60 decided they wanted to convert a large IRA to Roth incrementally, and then when they’re 70, they want to go on a world cruise or something like that. Then, obviously, if they wanted to use tax-free income, they would want to dip into the oldest Roth conversion first, the ones that are more than five years old. And events, so those are pretty much the forms of tax-free income. The last topic being gifts. If you receive gifts, those are tax-free. Now, when accountants and estate planning attorneys talk about gift tax, they’re talking about if someone’s gift is part of an estate that goes over that 10 million, or I think it’s 11 million thresholds, whatever it is right now, then that gift tax would apply. But for 99.9 percent of the rest of this, if you received a gift from someone, whether it’s before an inheritance or any kind of gift, gifts are tax-free. That is pretty much it for tax-free income right now. And my next topic, I’m going to talk a little bit about the history of retirement. Not the history of pensions, not the history of social security, but the history of the idea of retiring, where you cease working and go into the next phase of your life. Some of the earliest examples of that were in the Roman Empire, where soldiers were given land and a pension after about 25 years of service. In 1881, Autobahn Bismarck said that people over 70 must retire, and they had what was recommended as contributory benefits for retirement. And it wasn’t really thought much about in our culture until after the industrial revolution. Before social security was passed into law in 1935, there was what’s called the Townsend Plan, where a representative in Congress was recommending $200 a month for folks who were going to be going to leaving the workforce and so forth. The Corning Company, you may have heard of them, they make glassware and other things like that. There was a representative of that company, her, his name, or might have been her name. I don’t know the gender of the person, but the name was Santa Ramrao. She pointed out or he pointed out, because this person was a student of both Eastern and Western cultures that Americans do not have the ability to appreciate doing nothing. That was a quote from her. And if any of you have ever read or anything from the Frenchman who wrote all these glowing things about the United States in the early 1800s, I think his name is Jatoqueville, he was amazed at the work ethic of Americans and perhaps that’s why we don’t have the ability to appreciate doing nothing. I think doing nothing is not anything that we should strive for. I know jokingly, if I would ask one of my grandchildren, what are you doing? And if they said nothing, I would ask him, well, how do you know when you’re done? And it sounds silly, but I think retirement historically should be looked at not as moving away from something, but maybe moving towards something. One in five people who are retired suffer from depression. And I don’t think it’s because they’re doing too many things in retirement. Maybe that they’re not appreciating doing nothing like that person from the Corning Company said I think it’s at best a little bit silly to say the very least. And I think retirement needs to be looked at in terms of moving, as I said, moving towards something rather than moving away from something and leaving a work environment where you were busy every day going into a new retirement. That requires, in my thinking, nearly as much planning as it does saving a large enough nest egg to have adequate resources in retirement. Because if the only planning that’s done is planning to have a large enough nest egg in retirement, then how will you spend your time? How can you give back? How can you have experienced joy or fulfillment if your entire mental energy has been spent on where’s the best place I can have my money? How can I grow it faster? How can I accumulate a larger nest egg? I think these are things that are sometimes thought about too much. And I think one of the difficulties, when people make that change from retirement, is their entire identity was based on what they did before retirement rather than moving forward toward what they’re going to be doing after retirement. The big company, Big Blue, I don’t know if you remember that terminology, IBM, way back in the 1960s, they discovered that they’re more highly paid executives that were well compensated. They worked hard. They were probably 50 hour a week people or more possibly. They had a high-paced work schedule once they retired, many of them died a very short period after retirement. And this is back when nearly everyone retired at about age 65. And what they discovered is although they had adequate resources, they had made no plans for what they were going to do once they retired. There was no plans for activities, hobbies, socialization, volunteering, part-time work, giving back to their church. None of that was ever planned for them and as a result, they ended up dying a very short period after they retired. And I think if we think in terms of retirement as just a complete cessation of work as opposed to going into a different direction, I think that’s what needs to be focused on. Not what you’re no longer going to be doing since you’re leaving the workforce, but what will you be doing now that you’re making this transition? I think embracing a new vision of work, whether it’s volunteer or part-time, figuring out how you can make a public contribution. What can you possibly do to maybe make the world a slightly better place? How can you generously give some of your time, money, and talent in order to benefit other people, especially if you feel that in your life you have been blessed? There are a lot of people who are going to be in a book that I’ll be releasing very soon. It’s called the Christian Path to Retirement. And I’ll just talk to you about one or two of the people whom I believe have found their path to retirement, their purpose in retirement. One of them is a man named Jeff Bradsky. Dr. Jeff Bradsky, he could almost be called a rock star among Christians who found their purpose in retirement. He’s the founder of a company called Joy International. They’re a non-profit, and their whole purpose is to fight human slavery and trafficking. I met this gentleman personally at Raccoon Creek. I was a minor sponsor at his golf tournament, and he hasn’t been wearing shoes since about 2010, which he’s written a children’s book about that, calling why, titled, “Why are you barefoot?” His organization, for example, doesn’t just go to places and raise money and talk about human trafficking. His organization goes right to the places where children are held in slavery, and they free them, and they also have places for them to make a transition, which is very difficult because some of the children and young people who have been in these slavery conditions have been that way for a number of years, so making that transition is quite difficult. I have examples of several, several other people and couples who have found their purpose in retirement, who have made the transition from work to giving back. In a very short period, I’ll have my book, The Christian Path to Retirement, available, it will be available on Amazon as well as for anyone who comes into my office for a conversation. In the meantime, thank you for listening. God bless you. Hopefully you’ll be here next week listening. If you’d like a conversation with me, call my office at 303-744-1128, and let’s continue to pray for our brothers and sisters in Israel. Bye now. Thank you for listening to Retirement Unpacked with your host, Al Smith, of Golden Eagle Financial. Set up a free consultation with Al today at klseradio.com/money. Find your purpose in retirement with Golden Eagle Financial. Investment Advisory Services offered through Brookstone Capital Management LLC, a registered investment advisor. Vcm and Golden Eagle Financial Limited are independent of each other. Insurance products and services are not offered through Vcm but are offered and sold through individually licensed and appointed agents.